Memo To: Ed Crane, President of CATO
From: Jude Wanniski
Re: Don't Blame Supply-Siders
Thumbing through your May/June CATO Policy Report, I spotted your "President's Message" with its promising headline, "The GOP: Slouching Toward Irrelevance." I was sure you would be blasting the wimpy Republicans on foreign policy for letting Clinton get away with unconstitutional war and for fanatical timidity on cutting taxes. Instead, I see you are complaining that Republicans have given up on shutting down the school lunch program. Huh?
As if this were not the worst political advice I've heard for Republicans from someone who isn't a Democrat, you then have the brass to take a shot at me and the supply-siders. I quote:
When Jack Kemp, Newt Gingrich, Vin Weber, Connie Mack, and the rest discovered Jude Wanniski and Art Laffer, they thought they'd died and gone to heaven. In supply-side economics they found a philosophy that gave them a free pass out of the debate over the proper role of government. Just cut taxes and grow the economy: government will shrink as a percentage of GDP, even if you don't cut spending. That's why you rarely, if ever, heard Kemp or Gingrich call for spending cuts, much less the elimination of programs and departments.
To make matters worse, you quote Milton Friedman saying it doesn't matter if spending is financed by taxes or borrowing. Friedman has been saying that for decades to pooh-pooh supply-side tax cuts. It is supremely irrelevant, Ed, because it does not take a nuclear physicist to understand that you can finance more spending when tax rates are optimum, not too high. Indeed, Friedman perhaps is the most sinister enemy of the supply-siders for the past quarter century, because of his insistence that if only we controlled the money supply and cut government, all would be well in the world. He has not enjoyed our pointing out over the years that it was exactly this advice to Richard Nixon (through George Shultz) that destroyed the economy, created poverty, invited drastic increases in welfare spending, ballooned the national debt via the monetarist inflation, and contributed to the collapse of confidence in Nixon that led to his impeachment and resignation. Did you notice, Ed, that Milton's Monetarist Minions now are insisting the Fed raise interest rates because the money supply is growing too fast?
It also was this sterling advice that destroyed any chance of George Bush winning re-election in 1992, when he took the advice of his Treasury Secretary Nick Brady to raise tax rates instead of borrowing (there is no difference, right?) and to criticize Fed Chairman Alan Greenspan for not increasing the money supply to Milton's specifications. If you like this sort of thing, you will love George W. Bush, Ed, as his chief economic advisors, Larry Lindsey and Marty Feldstein, are right up your alley. By the way, when Newt took your advice and went after the school-lunch program, there went any chance that we could cut tax rates in the 104th Congress. If he had concentrated on cutting the capital gains tax in the Contract With America, instead of going after your school-lunch program, Clinton never would have been able to make his comeback and we now could be trimming back on government spending where ordinary people might agree programs are overfinanced.
We of course should be indebted to Art Laffer for all time for his Curve, which you now sniff at. But as the primary political theoretician in the supply-side camp, I began arguing the "Two Santa Claus" theory in 1974. If the Democrats are going to play Santa Claus by promoting more spending, the Republicans can never beat them by promoting less spending. They have to promise tax cuts in order to grow the economy -- not to "starve the government of revenue," which is Milton Friedman's rationale. Let's shoot Santa Claus!